Street Sniffs at NA

Network Associates Inc. (NYSE: NET) is returning to its roots, but the company's shareholders may be a bit stumped.

While reporting increased profits for its first fiscal quarter, the company missed analysts' expectations and disappointed with its second-quarter predictions. Shares of Network Associates fell $0.19 (1.04%) to $18.10 on the news in trading on Tuesday.

Last week the company said it will sell its Sniffer network management business to Silver Lake Partners and Texas Pacific Group for $275 million in cash. The purchasers will launch a standalone entity called Network General to pursue development of the product (see Network Associates Sells Sniffer). After that bit is complete, Network Associates will rename itself McAfee (now its security division) and focus on selling computer security products.

The restructuring is widely seen as positive, but, as shown by the company's first-quarter earnings report yesterday, it will go through some pains during the transformation.

On a GAAP basis, the company reported a profit of $56 million, or 32 cents a diluted share, on revenues of $217 million for the quarter. Its pro forma profit was $18 million, or 10 cents a share, and lower than the 11 cents a share analysts were expecting.And to reflect the sale of its Sniffer biz, Network Associates announced that its second-quarter net revenues will likely be between $200 million and $205 million, with pro forma net earnings in the range of 4 to 6 cents a share. Prior to its announced restructuring, analysts were expecting the company's second-quarter revenues to be around $225 million.

Executives on yesterday's earnings call said the Sniffer selloff will affect about 15 percent of the company's workforce. Between 450 and 500 people are expected to leave Network Associates to join Network General.

In addition to selling Sniffer, the company is also planning to boost its channel sales to 90 percent and will be centralizing its support and services teams. It will reduce its service and support locations to four from 10 over the next six to nine months.

The new, slimmed-down McAfee, will consist of NA's enterprise anti-virus and intrusion prevention security business; its consumer security business; and McAfee labs, its research organization.

Network Associates said bookings for its McAfee business were $222.8 million in the last quarter, up 32 percent from $168.3 million reported in the year-ago period.James Rogers, Site Editor, Next-gen Data Center Forum